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[2003] ZAWCHC 7
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Francis v Sharp and Others (8477/01) [2003] ZAWCHC 7; [2003] 2 All SA 201 (C); 2004 (3) SA 230 (C) (6 March 2003)
Reportable
IN THE HIGH COURT OF SOUTH AFRICA
[CAPE OF GOOD HOPE PROVINCIAL DIVISION]
CASE NUMBER: 8477/01
In the matter between:
MARIE THERESE DOMINIQUE FRANCIS
Plaintiff/Respondent
and
JOYCE ANNE MARIE SHARP
First Defendant/Excipient
HENDRINA MARIA BOLTMAN
Second
Defendant/Excipient
PATH TRADING COMPANY (PTY) LTD
Third
Defendant
JORIN INTERNATIONAL CC
Fourth Defendant
JUDGMENT DELIVERED 6 MARCH 2003
HJ ERASMUS, J:
I shall refer to the respondent in these
proceedings as plaintiff, to the excipients as first defendant and
second defendant, and
to the third defendant as âthe companyâ.
The fourth defendant features only peripherally and will be referred
to as such.
Mr Fagan argued the matter before us on behalf of
the first and second defendant. Mr Möller appeared on behalf of the
plaintiff.
I would like to convey our gratitude to counsel for
comprehensive written heads and incisive argument.
The plaintiffâs action arises from an alleged
breach of contract by the first and second defendants. The plaintiff
seeks payment
of damages in the amount of R 324 424.10 and ancillary
relief.
The plaintiff does not seek any relief against the
company and the fourth defendant. They were cited, as it is put in
paragraph 6
of the Particulars of Claim, âfor purposes of notice of
these proceedingsâ.
At the time of the conclusion of the agreement,
the plaintiff was an unrehabilitated insolvent. She was rehabilitated
by order of
this Court on 25 March 1998.
The contract on which the plaintiff relies was not
reduced to writing. The terms of the agreement are set forth in the
following terms
in paragraph 7 of the Particulars of Claim:
In
and during 1996 the Plaintiff and the First and Second Defendants
entered into an agreement in terms whereof:
Joint
venture
they agreed that they would conduct a business
through the Third Defendant whilst the parties acted as equal
shareholders and/or
equity partners in the business so conducted
through the Third Defendant. It was accordingly expressly agreed,
alternatively
impliedly, alternatively tacitly, that they would
conduct a business through Third Defendant as a joint venture; and
they further agreed that the business activities of the
Third Defendant would entail,
inter alia
, the production,
marketing and sales of its products, and further the development of
the customer base in relation to the products
and associated
products manufactured and sold by the Third Defendant. Such
products consisted primarily in rotationally moulded
plastic bins
for utilisation in the fishing industry.
Retention of funds
In respect of the funds generated within the
company, from whatsoever cause, it was further agreed:
that Plaintiff, First Defendant and Second
Defendant and/or all interested parties would not be entitled to
receive any remuneration,
distributions and/or dividends and/or
payments in any manner or method in relation to the funds
generated within the Third
Defendant; and
for a period of 5 years no funds and/or money
available in the Third Defendant would be paid out, distributed or
withdrawn from
the Third Defendant, save in respect of direct
expenses incurred on behalf of the Third Defendant by the parties,
and as approved
from time to time between them.
It was further expressly, alternatively
tacitly, alternatively impliedly agreed that Plaintiff, First and
Second Defendant (hereinafter
âPlaintiffâ, âFirst Defendantâ
and âSecond Defendantâ or collectively the âpartiesâ) could
from time to time
reconsider the above limitation in respect of
payments to be made by and/or by the Third Defendant.
Shareholding
As equal equity shareholders of the same class
of shares in the Third Defendant, the Plaintiff, First Defendant
and Second Defendant
respectively became entitled, by reason of
their agreement set out hereinabove:
to each hold one third of the issued
shareholding in the Third Defendant; and
to be reflected as the registered members of
the Third Defendant.
Management
of legal duties
It was further expressly, alternatively
impliedly, alternatively tacitly agreed that the management of the
Third Defendant would
be conducted jointly between the parties; and
further
that each of the joint equal equity
shareholders would be appointed as director of the Third
Defendant; and
that the agreement between the parties would bind the
parties as shareholders and as directors
inter se
/or in
any event, against the Third Defendant, and the parties were
accordingly required to adhere to and comply with their
statutory
obligations and duties as directors ,
inter se
, and as
managers of the affairs of the Third Defendant, against the Third
Defendant;
that the parties would:
act in good faith towards each other and the
Third Defendant in their relationship with regard to the joint
venture conducted
through the Third Defendant and
act under a duty of disclosure against one
another; and/or
in any event within the parameters of their
fiduciary duties in respect of their relationship with the Third
Defendant and
including in respect of their duties towards the
financial management of the Third Defendant.
Plaintiffâs
shareholding not registered in her name
7.7 as
the Plaintiff at the time of the conclusion of the agreement was an
unrehabilitated insolvent, it was expressly agreed that
the Plaintiff
would not receive registration of transfer of her shareholding, or be
appointed as a director, until such time as she
was rehabilitated and
qualified to become a director;
7.8 It
was further expressly, alternatively impliedly, alternatively tacitly
agreed that:
the First and Second Defendants would hold the
Plaintiffâs portion of the equity in the Third Defendant on
behalf of the Plaintiff,
as nominees; and
that the First and Second Defendants would not
deal with such shareholding of which the Plaintiff was the
beneficial owner,
in any other manner than to retain it as
nominees on behalf of the Plaintiff for purposes of the eventual
registration of the
shareholding into her name, upon her
rehabilitation.
It was expressly, alternatively impliedly,
alternatively tacitly, agreed that the First and/or Second
Defendants were not entitled
and/or authorised to encumber,
transfer or otherwise deal with the Plaintiffs claims against the
First and/or Second Defendants
in respect of her share in the
equity in Third Defendant, as set out hereinabove.
At all material times to the conclusion of the
agreement between the Plaintiff and First and Second Defendants, as
set out hereinabove,
and the amendment thereof as set out in
paragraph 8 below:
the agreement was entered into orally; and
the parties acted personally; and
the agreement was entered into at the premises
of the Third Defendant, situate at Montague Gardens, Cape Town;
at the same time and place where the Plaintiff
entered into the agreement with the First and Second Defendants,
the Third Defendant,
duly represented by its directors, appointed
and instructed by its shareholders, the First and Second
Defendants, at the time,
took knowledge of and accepted the
benefits of the agreement entered into between the Plaintiff and
First and Second Defendants
as set out hereinabove and
particularly the provisions of the agreement as pleaded in
paragraphs 7.3 to 7.3.2 and 7.4 above.
7.10 At
all material times prior to the conclusion of the agreement between
the Plaintiff and the First and Second Defendants, the
First and
Second Defendants in accordance with a written shareholders agreement
dated 15 April 1996, bound themselves to each other
as the
shareholders of the Third Defendant in accordance with the provisions
of their said written agreement, a copy whereof is annexed
hereto as
Annexure âDFAâ.
The plaintiff alleges that subsequent to her
rehabilitation, the first and second defendant â
failed to cause registration of plaintiffâs
agreed percentage shareholding; and
failed to appoint the plaintiff as a director
of the company.
The plaintiff further alleges that during the
period 1996 to 1998 the first and second defendant paid various
amounts out of the funds
of the company in breach of the express
agreement not to remove any funds generated in the company.
As a result of the various alleged breaches of the
agreement between the parties, the plaintiff cancelled the agreement
and now claims
damages in the amount of R342 424.10.
Exceptions
The first and second defendants excepted to the
plaintiffâs Particulars of Claim. There are twenty-eight grounds of
exception. Eight
of these, the first, second, sixth, eighth, ninth,
tenth, twelfth and fifteenth, go to the alleged failure of the
plaintiff to make
averments necessary to sustain a cause of action.
These exceptions each have an alternative contention that the
particulars of claim
are vague and embarrassing. The other twenty
grounds of exception are on the basis solely that the amended
particulars are vague
and embarrassing.
The exceptions that the Particulars of Claim lack
averments to sustain a cause of action can be divided into two
groups. The first,
second, sixth, ninth and tenth grounds of
exception are built upon the premise that (i) the agreement on which
the plaintiff relies
is in the nature of a partnership agreement, and
(ii) that according to the Particulars of Claim the plaintiff was at
no stage a
shareholder of the company. These exceptions are
considered below under the heads
No cause of action
and
The nature of the agreement pleaded.
The twelfth and fifteenth grounds of exception
relate to the plaintiffâs insolvent state at the time the agreement
was entered into.
These two grounds are considered below under the
head
Insolvency
.
The exceptions that the Particulars of Claim are
vague and embarrassing are considered under the head
Vague and
embarrassing.
No cause of action
The premise upon which the first, second, sixth,
ninth and tenth grounds of exception are built, that the agreement
between the parties
is in the nature of a partnership agreement and
that the plaintiff was at no stage a shareholder of the company,
finds primary expression
in the first ground of exception, the other
grounds then being built upon that edifice.
In the
first
exception
, the excipients say that it appears from the
Particulars of Claim that the agreement on which the plaintiff relies
âis to be regarded
as being in the nature of a partnership
agreementâ. A number of the terms of the agreement which have been
alleged are terms which
by their nature can only be agreed upon among
the shareholders of a company, subject to the provisions of the
Companies Act 61 of
1973 ("the Act") and the companyâs
memorandum and articles of association. The excipients accordingly
aver that inasmuch
as the terms on which the plaintiff seeks to rely
cannot validly constitute part of a partnership agreement, and
inasmuch as the
plaintiff has failed to allege a shareholdersâ
agreement separate from the partnership agreement, the particulars
fail to make
out a cause of action.
The
second and
sixth exceptions
are directed at paragraphs 7.3 and 7.4 of the
Particulars of Claim. The gist of the exceptions is that the
utilisation of the funds
of a company are matters pre-eminently
within the domain of the directorsâ powers, and cannot be regulated
by a partnership agreement
between the parties.
The
eighth
exception
is directed at paragraph 7.6 of the Particulars of
Claim in which the plaintiffit alleges that it was agreed that the
management
of the company would be conducted jointly between the
plaintiff and first and second defendant in terms of a âjoint
ventureâ
or partnership agreement. The excipients say that such an
agreement is invalid in law inasmuch as the management of a company
vests
in its directors.
In the
ninth
exception
, the excipients say
that the allegations in
paragraph 7.6.1 of the Particulars of Claim are not sustainable in
law inasmuch as no power vests in outsiders
to a company to appoint
its directors by way of a partnership agreement.
In the
tenth
exception
it is contended that there is no basis for the
allegation that the agreement between the parties would bind them "as
shareholders
and as directorsâ -- the excipients say that
agreement on which the plaintiff relies is not a shareholdersâ
agreement, the agreement
being pleaded as being in the nature of a
partnership agreement, and the plaintiff was at no stage a
shareholder of the third defendant.
I preface evaluation
of these exceptions by three preliminary observations. Firstly, in
Colonial Industries Ltd v Provincial Insurance Co Ltd
1920 CPD
627
at 630 Benjamin J said in regard to the general approach to
exceptions:
â
Save in the instance
where an exception is taken for the purpose of raising a substantive
question of law which may have the effect
of settling the dispute
between the parties, an excipient should make out a very clear,
strong case before he should be allowed to
succeed.â
This approach has
been consistently followed in this Division (see, for example,
Kahn
v Stuart and Others
1942 CPD 386
at 391;
Lobo Properties (Pty)
v Express Lift Co (SA) Pty Ltd
1961 (1) SA 704
(C);
Levitan v
Newhaven Holiday Enterprises CC
1991 (2) SA 297
(C) at 298A âC;
South African National Parks v Ras
[2001] 4 All SA 380
at
385e).
Secondly, the Courts
are reluctant to decide upon exception questions concerning the
interpretation of a contract
(
Sun Packaging (Pty) Ltd v
Vreulink
[1996] ZASCA 73
;
1996 (4) SA 176
(A) at 186J). In this regard, it must be
borne in mind that an excipient has the duty to persuade the Court
that upon every interpretation
which the Particulars of Claim can
reasonably bear, no cause of action is disclosed (
Theunissen v
Transvaalse Lewendehawe Koöp Bpk
1988 (2) SA 493
(A) at 500D;
Lewis v Oenanate (Pty) Ltd and Another
[1992] ZASCA 174
;
1992 (4) SA 811
(A) at
817F).
Thirdly, it has been
held that a commercial document executed by the parties with a clear
intention that it should have commercial
operation should not lightly
be held to be ineffective (
Burroughs Machines Ltd v Chenille
Corporation of SA (Pty) Ltd
1964 (1) SA 669
(W) at 670GâH;
Murray & Roberts Construction Ltd v Final Properties (Pty) Ltd
1991 (1) SA 508
(A) at 514EâF). In my view, a similar approach
should, in broad terms and
mutatis mutandis
, be adopted in
regard to an oral commercial agreement.
The nature of the agreement pleaded
At the outset, the
premise which underlies the first, second, sixth, ninth and tenth
grounds of exception must be tested. In her Particulars
of Claim, the
plaintiff in essence pleads â
that in 1996 the plaintiff and the first and second defendant
entered into an agreement;
that at the time of the conclusion of the agreement, the
plaintiff was an unrehabilitated insolvent;
that it was agreed
that the parties would conduct a business through the company
(paragraph 7.1 of the Particulars of Claim);
that each one of the plaintiff, first defendant and second
defendant would hold one third of the issued shareholding of the
company
(paragraph 7.5 of the Particulars of Claim);
that the first and second defendant would hold as nominees
the plaintiffâs portion of the equity in the company on behalf of
the
plaintiff who was the beneficial owner of the shares (paragraphs
7.8.1, 7.8.2 and 13.6 of the Particulars of Claim); and
that as âequal equity shareholdersâ (paragraph 7.5 of the
Particulars of Claim), she and the first and second defendant agreed
on various matters pertaining to the conduct of the business of the
company, the retention of funds in the company, the management
of
the company and the appointment of directors of the company.
Underlying the
first, second, eighth, ninth
and
tenth
grounds of
exception is the premise that the plaintiff was at no stage a
shareholder of the company. Yet, it is explicitly alleged
in
paragraph 7.5 of the Particulars of Claim that it was agreed that the
plaintiff would be the beneficial owner of one-third of
the shares in
the company (by subsequent agreement amended to a 24% shareholding)
to be held in the meantime (until her rehabilitation)
by the first
and second defendant as her nominees (paragraphs 7.8.1, 7.8.2 and
13.6 of the Particulars of Claim).
If, as alleged, the
plaintiff was the beneficial owner of shares in the company, the
first and second defendant, as her nominees,
were bound to exercise
their rights and powers as members as directed by, and in the
interest of the plaintiff as beneficial owner
(
Oakland Nominees
(Pty) Limited v Gelria Mining & Investment Co (Pty) Ltd
1976
(1) SA 441
(A) at 453A, 456G). The nature of the rights and
obligations of the plaintiff as nominator and the first and second
defendant as
nominees
inter se
would be governed by the
contract or relationship between them (
Henochsberg on the
Companies Act
5
th
ed Volume I 210).
The
agreement pleaded by the plaintiff is akin to that on which the
plaintiff relied in
Stewart v Schwab and Others
1956 (4) SA
791
(T). In that case, the plaintiff and the first and second
respondents entered into an agreement in regard to their relationship
with
a company which featured as the third respondent in the
proceedings. The agreement, stated in the papers to be an agreement
of âpartnershipâ,
is described as follows by De Wet J (at
792GâH):
â
The material terms of
this agreement are that the sole shareholders of the Company shall be
the applicant and the first and second
respondents, who shall hold
respectively 875, 875, and 3,050 shares of a nominal value of £1;
that the applicant and the first and
second respondents shall be the
directors of the Company and be entitled to draw a minimum amount of
£30 per month each; that notwithstanding
the disparity in
shareholding each director shall have âequal powerâ; that the
partnership shall continue for an indefinite time
subject to the
right of each partner to withdraw on three monthsâ notice,
whereupon the remaining partners shall have the right
to purchase his
shareholding in the Company, and the partner withdrawing would be
paid out in a specified manner. It is provided
that the applicant and
the first respondent shall devote their whole time and attention to
the conduct of the Companyâs business.â
The applicant sought
an order for an interdict restraining the first and second respondent
from voting at a meeting of shareholders
in support of a resolution
removing the applicant as a director of the company. Several
questions were debated during the course
of the proceedings, the
first and second of which are relevant in the present context. In
regard to the first, it was held (at 793D)
that the three parties
have agreed that their relationship
inter se
would be that of
three partners. In regard to the second, it was held (at 793G) that
an agreement by shareholders
inter se
and
dehors
the
articles of a company in regard to the exercise of their votes is a
valid agreement. The correctness of this conclusion was assumed
in
Desai and Others v Greyridge Investments (Pty) Ltd
1974 (1) SA
509
(A) at 518H (and see
Swerdlow v Cohen and Others
1977 (3)
SA 1050
(T) at 1057F).
The agreement as
pleaded by the plaintiff displays similar characteristics: in so far
as it regulates the relationship of the parties
inter se
, it
was an agreement in the nature of partnership; in so far as it
pertains to the conduct of the affairs of the company, it was
an
agreement between shareholders. The plaintiff, as beneficial owner of
one-third of the shares, participated in the shareholdersâ
agreement through her nominees who were obliged to give effect to her
directions.
The
first,
second, sixth, eighth, ninth,
and
tenth
exceptions that
the Particulars of Claim do not contain averments to sustain a cause
of action fall to be dismissed. The alternative
ground that the
averments in question are vague and embarrassing cover the same
ground and are also to be dismissed.
Insolvency
The
twelfth
and
fifteenth
grounds of exception which relate to the
plaintiffâs insolvency can be summarised as follows:
In the
twelfth exception
the excipients say that insolvency
does not preclude a person from being a shareholder in a company and
that there is, therefore,
no basis in law for the allegation in
paragraph 7.7 of the Particulars of Claim that it was agreed that the
plaintiff, being an unrehabilitated
insolvent, would not take
transfer of her shareholding in the company.
I can see no
substance in this complaint. The plaintiff does not say that it was
agreed not to transfer her shareholding
because
she was
precluded by reason of her insolvency from taking transfer of the
shares. The motives of the plaintiff and the first and
second
defendant in agreeing not to transfer the shares are not relevant to
the pleading.
The excipients
further say that if the agreement was intended to preclude shares
falling into the plaintiffâs insolvent estate,
then the agreement
would be unenforceable by virtue of being
in fraudem creditorum
and therefore illegal. This is pure speculation. Any allegation
that the intention underlying the agreement was to defraud creditors
can, in so far as it may be relevant, be raised by way of plea so
that evidence thereanent can in due course be presented.
The
fifteenth
exception
is directed at paragraph 10 of the Particulars of Claim
in which the allegation is made that the plaintiff, and the first and
second
defendants, commenced trading through the company in 1996. The
first and second defendantâs grievance is that there is no
allegation
that the plaintiff had the consent, under section 23(3)
of the Insolvency Act 24 of 1936 (âthe Insolvency Actâ), of
either the
trustee of her insolvent estate or the Master of the High
Court to trade âthrough the third defendantâ. The excipients say
that
the allegations in paragraph 10 are
prima facie
indicative of illegal conduct on the part of the plaintiff pursuant
to an alleged agreement which is itself in the premise unlawful.
The
plaintiff has, therefore, so it is contended, failed to make out a
cause of action.
It is, in my view, not incumbent upon the plaintiff to plead that
the trustee or Master had given the necessary consent. It may be
that
such consent was in fact not needed â this would turn
inter alia
on the question whether, for purposes of
section 23(3)
of the
Insolvency Act, the
company is a âgeneral dealerâ or a
âmanufacturerâ. If the defendants wish to rely on the point,
they can raise it by way
of plea.
The
twelfth
and
fifteenth
exceptions fall to be dismissed.
Vague and
embarrassing
The approach to be adopted to an
exception that a pleading is vague and embarrassing was stated as
follows in
Levitan v Newhaven Holiday Enterprises CC, supra,
at 298A:
â
It has been stated,
clearly and often, that an exception that a pleading is vague or
embarrassing ought not to be allowed unless the
excipient would be
seriously prejudiced if the offending allegations were not expunged.â
To this must be
added the consideration that the validity of an agreement and the
question whether a purported contract may be void
for vagueness, do
not readily fall to be decided by way of an exception (
Delmas
Milling Co Ltd v Du Plessis
1955 (3) SA 447
(A);
Burroughs
Machines Ltd v Chenille Corporation of SA (Pty) Ltd, supra,
at
676FâH;
Murray & Roberts Construction Ltd v Final Properties
(Pty) Ltd, supra,
at 514F).
The grounds of
exception that the Particulars of Claim are vague and embarrassing
are as follows:
The
third, fourth
and
fifth
grounds of exception focus on paragraphs 7.3.1 and
7.3.2 of the Particulars of Claim.
The
third
exception
complains about the alleged vagueness of the phrase
âthe funds generated in the companyâ in paragraph 7.3.1 of the
Particulars
of Claim, the complaint in particular being that it is
unclear what the nature of the restriction was that the agreement
imposed
upon the use of the companyâs funds. In this regard, it
is not without interest to note that in the written shareholdersâ
agreement
dated 15 April 1996 and annexed to the Particulars of Claim
as Annexure âDFAâ, the first and second defendant agreed âthat
all generated funds will be left in the companyâ. In terms of
paragraph 7.3.1 the restriction applies to the plaintiff, the first
and second defendant, and âall interested partiesâ. The alleged
vagueness of this phrase is the subject of the
fourth
exception:
it is not clear to which parties (other than the plaintiff and first
and second defendant it refers). It is further
said that since the
plaintiff presumably does not intend to say that employees of the
company were not entitled to remuneration,
or that suppliers were not
entitled to receive payment, the phrase âfunds generated within the
companyâ does not encompass all
the funds of the company, and that
the Particulars of Claim lack specificity as to which funds were
intended to be included in the
prohibition.
The oral agreement
upon which the plaintiff relies, was entered into by business people
who intended their agreement to have commercial
operation. If the
impugned paragraphs are read within the context of the agreement as a
whole, and as a business document, it is
apparent that the funds
generated within the company can only be the funds that derive from
the business activities of the company
set out in paragraphs 7.1 and
7.2 of the Particulars of Claim. These activities involve,
inter
alia,
the production, marketing and sales of the companyâs
products. Such activities inevitably involve the payment of
remuneration to
employees, marketing costs in the form of
advertising, commission to sales personnel and the like. The
reference to âall interested
partiesâ seems to have been intended
as a catch-phrase to enable the parties to exercise the power given
by paragraph 7.4 to extend
the limit on the use of the funds in
favour of parties other than the plaintiff and the first and second
defendant. Whatever residual
vagueness might lurk in the use of the
phrase, it is not such that it would cause serious prejudice to the
first and second defendant
if it were not expunged.
The
fifth
exception
also focuses on paragraphs 7.3.1 and 7.3.2, the
complaint being that the allegations contained in the two paragraphs
are contradictory,
thus rendering the Particulars of Claim vague and
embarrassing. The two paragraphs must be read together, and with
paragraph 7.4
within the context of paragraph 7 as a whole.
Paragraph 7.3 is an elaboration and qualification of paragraph 7.2.
The
third
,
fourth
and
fifth
exceptions are to be dismissed.
The
seventh
exception
relates to paragraph 7.5 of the Particulars of Claim
and the complaint is that the introductory words âas equity
shareholders of
the same classâ are not understood. From the terms
of the agreement pleaded it is apparent that the parties agreed that
they would
share the shareholding in the company and that the first
and second defendants undertook to hold the plaintiffâs
shareholding as
her nominees. The plaintiff is alleging an
entitlement to shares by virtue of an agreement with the first and
second defendant. The
exception must be dismissed.
The
eleventh
exception
is based upon the contention that the allegation in
paragraph 7.6.3.3 of the Particulars of Claim that the âpartiesâ
(as defined
in paragraph 7.4) would act âwithin the parameters of
their fiduciary dutiesâ is vague and embarrassing inasmuch as the
plaintiff
could not at the time the agreement was entered into become
a director of the company and also did not owe the company any
fiduciary
duties. Again, the meaning becomes clear if one reads the
paragraph within the context of the agreement as a whole. Paragraph
7.6
deals with the relationship of the parties
inter se
and
provides
inter alia
that they would act in good faith towards
each other (paragraph 7.6.3.1). The reciprocal duties
inter se
were not to override their fiduciary duties as directors of the
company. It was agreed that the plaintiff would not immediately be
appointed as a director and that she would become one after her
rehabilitation (paragraph 7.7). The agreement in relation to
fiduciary
duties set out in paragraph 7.6.3.3 was clearly intended to
apply to the first and second defendant during the period the
plaintiff
was not a director, and would apply to the plaintiff upon
her appointment as director.
The
thirteenth exception
raises an alleged contradiction between
paragraphs 7.9.4 and 7.6.1 of the Particulars of Claim. In
paragraph 7.9.4 it is alleged
that the first and second defendants
were directors of the company at the time the agreement between the
parties was concluded.
In paragraph 7.6.1 it is alleged that one of
the terms of the agreement was that the first and second defendants
would be
appointed as directors of the company. The
contradiction is more apparent than real: the agreement between the
parties regulates
future conduct and read within context, provides
that the plaintiff along with the first and second defendant would be
appointed
directors. It could have been phrased differently; for
example, that it was agreed that the plaintiff would join the first
and
second defendant on the board. The exception must be dismissed on
the basis that the first and second defendant will not be seriously
prejudiced if the allegations were allowed to stand.
The
fourteenth
ground of exception raises the objection that the plaintiff appears
to intend, by the allegations in paragraph 7.9.4 of the Particulars
of Claim, to make the company a party to the partnership agreement by
virtue of its acceptance of the benefits thereunder â in
other
words, the plaintiff seeks to rely on a
stipulatio alteri
. The
excipients contend that it is of the nature of a
stipulatio alteri
that one of the original contracting parties âdrops outâ of the
contract, to be replaced by the third party who accepts the benefits
thereunder.
In casu
, it has not been alleged that the
plaintiff, the first defendant or the second defendant âdropped
outâ of the agreement by virtue
of the acceptance by the company of
âthe benefits of the agreementâ. The plaintiffâs claim against
the first and second defendant
is premised on all three parties
having remained parties to the agreement.
The plaintiff says
in paragraph 7.9.4 of her Particulars of Claim that the company âtook
knowledge of and accepted the benefitsâ
of the agreement between
the plaintiff, and first and second defendant, âparticularly the
provisions of the agreement as pleaded
in paragraphs 7.3 to 7.3.2 and
7.4â of the Particulars of Claim which deal with the retention of
funds generated within the company.
It is clear from these paragraphs
that the intention was that the plaintiff, and the first and second
defendant would remain parties
to the agreement. Despite the use of
wording therein which is reminiscent of a contract for the benefit of
a third party, paragraph
7.9.4, read with paragraphs 7.3 to 7.3.2 and
7.4, in effect says that the company joined the plaintiff, and the
first and second
defendant as a further contracting party.
The
sixteenth
ground of exception complains that the allegations in paragraph 10
regarding the contractual obligations of the plaintiff do not
coincide with the terms of the agreement alleged in paragraph 7,
thereby rendering the Particulars of Claim vague and embarrassing.
In my view, there are no contradictions between the agreement set
forth in paragraph 7 (and in particular the allegations in paragraph
7.2) and paragraph 10.
In the
seventeenth exception
, the first and second defendant object to
the allegation in paragraph 11.1.1 of the Particulars of Claim that
the plaintiff was a
de facto
director of the company. The
objection is not elaborated upon and on the face of it, it would
appear that the excipients are simply
complaining about the use of
the phrase â
de facto
directorâ, an expression which in law
and practice has a defined and ascertainable meaning (see:
J.S.
McLennan âDirectorsâ Duties and Misapplications of Company Fundsâ
(1982) 99
SALJ
394
at 400ff;
LAWSA
1
st
Reissue, Volume 4
Part 2
paragraph 50).
The
eighteenth,
nineteenth, twentieth, twenty-first, twenty-second, twenty-third,
twenty-fourth
and
twenty-fifth
exceptions deal with
paragraph 13 of the Particulars of Claim in its relationship with the
other paragraphs of the Particulars.
The
eighteenth
and
twentieth
exception deal with paragraph 13, 13.1, 13.3 and
12.1 of the Particulars of Claim, the complaint being that these
paragraphs contain
contradictory allegations. In paragraph 13 (the
introductory part) it is alleged that during about January 1999 to
about May 1999,
the plaintiff became aware that the first and second
defendant breached the provisions of the agreement âas followsâ.
In paragraphs
13.1 to 13.4 the plaintiff sets out various ways in
which the agreement had been breached. One of the breaches of which
the plaintiff
became aware during this period is the failure of the
first and second defendant to cause registration of the agreed 24%
shareholding
into the name of the plaintiff. In paragraph 12.1 the
plaintiff says that it came to her knowledge âby about May 1999â
that the
first and second defendant had failed to effect transfer of
the shares into her name. In the
eighteenth
exception the
first and second defendant say that the allegations are
contradictory. The contradiction escapes me. In paragraph 13
she says
that various breaches came to her notice during the period January
1999 to May 1999, one of these being the failure to effect
transfer
of the shares. In paragraph 12 she says that she became aware of the
failure to transfer the shares towards the end of that
period, namely
in about May 1999.
In paragraphs 13.3.2
and 13.3.3 the plaintiff says that during about June to October 1999
she became aware that the first and second
defendant, in breach of
the agreement between them, had, during the year ending February
1997, paid an amount of R253 000.00 out
of the company as âdirectorsâ
emolumentsâ. This, the first and second defendant say, is in
contradiction with paragraph 13
in which the plaintiff alleges that
various breaches came to her notice during the period January 1999 to
May 1999. The dates given
are approximate and are to be proved by the
plaintiff. Even if the dates alleged in the introductory part of
paragraph 13 are in
contradiction with those given in paragraph
13.3.3, I fail to apprehend the serious prejudice the first and
second defendant will
suffer as a result.
The
eighteenth
and
twentieth
exceptions must be dismissed.
The
nineteenth
exception
relates to paragraph 13.2 of the Particulars of Claim
in which the plaintiff alleges that, despite that fact that she acted
as a
de facto
director of the company during 1998 and 1999,
and despite the fact that she was reflected as a director on the
companyâs letterheads,
the first and second defendant failed and/or
refused to âproperly appointâ her as a director of the company.
The excipients object
that the allegation is dependent upon the
assumption that the first and second defendant, as two of the three
parties to a partnership
agreement, were empowered to make such an
appointment. They further contend that appointment as directors are
not in the normal course
made by individual shareholders and
directors, and that the plaintiff has failed to allege any basis on
which the first and second
defendant would have been empowered to
make such an appointment, thereby rendering the Particulars of Claim
vague and embarrassing.
The objection is
based upon an incorrect premise. The allegation is in my view not
dependent upon the assumption that the first and
second defendant, as
two of the three parties to a partnership agreement, were empowered
to make such an appointment. The parties,
as business people, did not
in their agreement deal with the all the legal niceties as would a
meticulous legal draftsman in documents
created on behalf of a
client. Though it is not pleaded in explicit terms, and indeed it was
not necessary to do so, it is implicit
in terms of the agreement that
the appointment would be made in terms of the law. As has been
pointed out above, the agreement as
pleaded by the plaintiff has a
dual nature: in so far as it regulates the relationship of the
parties
inter se
, it was an agreement in the nature of
partnership; in so far as it pertains to the conduct of the affairs
of the company, it was
an agreement between shareholders. The first
and second defendant bound themselves to see to the appointment of
the plaintiff as
director after her rehabilitation. The appointment
could have been made by the company in general meeting; and at that
meeting, the
first and second defendant might have been bound to
exercise their votes in terms of the agreement between the parties
(see
Stewart v Schwab and Others, supra,
at 793G). The
nineteenth
exception must be dismissed.
The
twenty-first
exception
objects to paragraph 13.5 of the Particulars of Claim
in which it is alleged that the first and second defendant breached
the terms
of the agreement between the parties by incurring expenses
and liabilities to the company that they were not authorised to make
â
â
and/or further caused
payments to be made in relation to expenses in relation to which they
held an interest adverse to that of [the
company], to the detriment
of [the company] and the Plaintiffâs interest therein through her
shareholding.â
The complaint raised
in the exception is that no factual basis has been laid for the
allegation that the first and second defendants
acted pursuant to an
interest which they held âadverse to thatâ of the company. The
breach alleged pertains to the limitation
of the parties in relation
to the application of funds from the company set out in paragraphs
7.3 and 7.4 of the Particulars of Claim.
Although paragraph 13.5
might with advantage have been framed with greater particularity, I
do not think it is so wanting in particularity
as to embarrass the
first and second defendant in pleading to it. The
twenty-first
exception
must be dismissed.
The
twenty-second
exception is taken to paragraph 13.7 (the introductory part) read
with paragraph 13.7 (the introductory part) and paragraph 14. The
complaints in the exception are that the allegations in these
paragraphs are contradictory and render the particulars of Claim
vague
and embarrassing. Paragraph 13.7 is a sub-paragraph of
paragraph 13, the introductory part of which alleges breaches âof
the provisions
of the agreementâ; paragraph 14 alleges a right to
cancel the agreement by virtue of alleged breaches thereof. Paragraph
13.7 alleges
that â
â
The
First and/or Second Defendants in breach of their statutory and legal
duties, and the terms of the agreement between the parties,
recklessly, fraudulently, alternatively and in any event, grossly
negligently and/or negligently conducted the business in the Third
Defendant,
inter alia
:â
Two instances of
such breach are given: the use of the phrase
inter alia
does
not allow the plaintiff to rely on any other instance of such breach
which has not been specifically pleaded. Paragraph 13.7.1
alleges
failure or refusal to allow the plaintiff access to or insight into
the various transactions by which the first and second
defendant
removed funds from the company. The first and second defendant were
under no statutory to furnish the plaintiff such access.
They might
have been obliged to do so under the agreement which regulates their
relationship
inter se
. The breach alleged in paragraph 13.7.2,
that the first and second defendant facilitated payments, included
but not limited to directorsâ
emoluments, to themselves and to
other parties, is explicitly characterised as a âbreach of the
agreement between the partiesâ.
The words âtheir statutory â¦
dutiesâ in paragraph 13.7 seem to be no more than surplus verbiage.
The use of unnecessary words
which do not embarrass the other side
does not justify an exception to a pleading (
Osman v Jhavary and
Others
1939 AD 351
at 370). The
twenty-second
exception is
to be dismissed.
The
twenty-third
exception is also taken to paragraph 13.7 (the introductory part),
read with paragraph 7. The complaint is that to the extent that
the
first and second defendants are alleged in paragraph 13.7 to have
acted ârecklessly, fraudulently, ⦠grossly negligently
and/or
negligentlyâ in breach of âthe terms of the agreement between the
partiesâ, the relevant terms of the agreement were
not presaged by
paragraph 7. It will be noticed that in spite of the use of
phraseology reminiscent of delictual liability, the plaintiff
alleges
a breach of contract. Mr Möller submitted that the breaches of
contract relied upon relate to the contractual duty to act
within the
duties specifically pleaded in paragraph 7.6 of the Particulars of
Claim. This seems to be correct in so far as the breach
alleged in
paragraph 13.7.1 is concerned. Paragraph 13.7.2 alleges a breach of
the terms of the agreement set out in paragraph 7.3.
The
twenty-third
exception must be dismissed.
In the
twenty-fourth
exception, the excipients say that the plaintiff in paragraph 14
alleges that she cancelled the agreement âin and during about
May
to June 1999â and âby reason of the breaches aforesaidâ. The
âbreaches aforesaidâ are those set out in paragraphs 13.1,
13.2
and 13.3 of the Particulars of Claim. According to paragraph 13.3.3,
the plaintiff became aware of one of the breaches âduring
June to
October 1999.â The complaint is that the plaintiff could not have
cancelled the agreement by virtue of information of
which she was
unaware at the time. On a reasonable reading of the pleading, it is
clear that the plaintiff became aware of various
alleged breaches at
different times. The breaches alleged in paragraphs 13.1 and 13.2
were known to the plaintiff at the time when
she cancelled the
agreement âin and during about May to June 1999â. On the face of
the pleading, it would appear that the plaintiff
became aware of the
breach alleged in paragraph 13.3 after she had cancelled the contract
and that the allegation that she cancelled
the contract by reason of,
inter alia
, the breach alleged in that paragraph, is mistaken.
The error is not such that the first and second defendant would be
seriously
prejudiced if the offending allegations were allowed to
stand.
The
twenty-fifth
exception objects to paragraph 15, read with paragraph 13.7, in which
it is alleged that the plaintiff has suffered damages by reason
of
the first and second defendantsâ âbreaches of their aforesaid
duties and/or breaches of the agreementâ. The complaint is
that the
plaintiff âonce againâ introduces confusion into the question of
whether she is claiming on the basis of a breach of
the agreement or
on the basis of a breach of âstatutory and legal dutiesâ. This
complaint has been dealt with above under the
twenty-second
exception.
The
twenty-sixth
ground of exception in effect re-iterates the objection raised under
the fifteenth exception. The exception falls to be dismissed
for the
same reasons as the
fifteenth
exception.
The
twenty-seventh
exception is raised to paragraph 19 of the Particulars of Claim. In
this paragraph, the plaintiff alleges that sales of the companyâs
products were procured through her efforts âin accordance with the
provisions of the agreementâ. The complaint is that the plaintiff
has failed to set out the provisions of the agreement to which the
allegation pertains. In my view, the exception is without merit.
The
relevant terms of the agreement are set out in paragraphs 7.1 and 10
of the Particulars of Claim.
I arrive now, if I
may use the words of Tindall JA in
Osman v Jhavary and Others,
supra,
at 369, ânot without a sense of relief, at the last of
the exceptions which has to be decided.â In the
twenty-eighth
exception, the objection is raised that the Particulars of Claim lack
the necessary allegations to establish a claim based on special
damages. The allegation in paragraph 22 of the Particulars of Claim
that the damage was in the contemplation of the parties is pleaded
as
an alternative to the allegation that the damage flowed as a direct
and natural consequence from the cancellation of the agreement
following upon the breaches of the first and second defendant. Both
legs of damage are built upon the allegations in paragraphs 14
to 22
of the Particulars of Claim. In my view, the allegations set out in
those paragraphs are sufficient to ground a claim for special
damages
and the first and second defendant will suffer no prejudice if they
are required to plead to the allegations set out in paragraph
22 of
the Particulars of Claim.
The Particulars of
Claim might with advantage have been framed with greater clarity. I
do not, however, think that the Particulars
are so wanting in clarity
that the first and second defendant should have difficulty in
pleading thereto. Not one of the of the grounds
of exception that the
particulars of Claim are vague and embarrassing is such that the
excipients would be âseriously prejudicedâ
if the offending
pleading is allowed to stand. The plaintiff says that she entered
into an agreement with the first and second defendant.
She pleads the
terms of the agreement and the manner in which she alleges that the
agreement had been breached. The excipients are
not prevented from
putting up their version. They may deny that the parties had entered
into an agreement. If they admit that an
agreement with different
terms had been entered into, they can plead their own version of
those terms. The difference between the
versions will have to be
resolved in the light of the evidence adduced at the trial. In
addition, it happens more often than not
that parties enter into
agreements, either in writing or orally, of which the terms are
ambiguous, uncertain or disputed. While it
is the function of the
Court to resolve those ambiguities and uncertainties, the exception
is generally not an appropriate vehicle
for resolving such disputes.
I
would dismiss with costs all the exceptions raised by the first and
second defendant.
________________
HJ ERASMUS, J
I agree and it is
so ordered _______________
VAN ZYL, J